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TMI Blog2013 (11) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to appreciate that when admittedly the appellant is not at all carrying on any business in the previous year, there is no question of any chargeability under the head "profits and gains of business", as carrying on business is a sine qua non for applicability of s.28. 2. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the payment of Rs. 5 Crores was compensation for the total destruction of a source of income, and as such was a capital receipt and not a revenue receipt. The sum was not of revenue character at all. 3. The Learned Commissioner of Income-tax (Appeals) erred in holding that the amount was taxable u/s.28(va), without appreciating that the amount was not received for 'not carrying out any activity in relation to any business'; and at best, the amount would only be chargeable under the head Capital Gains, as being an amount received on transfer if any, of right to carry on business. He ought to have held that s.28(va) only creates a fiction as to source, but does not deem a capital receipt as income. 3. The facts giving rise to these grievances emanates from the assessment order passed u/s. 143(3) of the Act dt. 30.9.2011. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head 'Profit or Gain from business or profession'. 4. The assessee strongly agitated this matter before the Ld. CIT(A) and strongly contended that the assessee himself was not carrying on any business whatsoever and reiterated that it is a basic condition for taxability under the head 'Profit & Gain of business that the assessee must be carrying on business. It was further pointed out by the assessee that Sec. 28(va) does not indicate that the assessee is deemed to be carrying on any business. It only applies when the basic condition is fulfilled, and has no application in the absence of the assessee carrying on business. The assessee placed reliance on the decision of the Hon'ble ITAT in the case of Mrs. Hami Aspi Balsara v. Asstt. CIT [2010] 126 ITD 100 (Mum). The assessee further pointed out to the Ld. CIT(A) that on a proper interpretation of the agreement between the parties, it will be seen that the fee is not merely a non compete or a fee for not carrying on an activity in relation to business, rather it is paid for transfer of a right to carry on business itself. Therefore, it is taxable under the head 'capital gains' u/s. 55(2)(a) of the Act. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpete fee under the head profits and gains of business. On the contrary, it is a capital receipt and has been rightly returned under the head capital gains by the assessee in his return of income. The Ld. Counsel filed a Paper book relying upon the decision of ITAT in the case of Mrs. Hami Aspi Balsara (supra), ACIT v. Savita Mandhana in ITA No. 3900/Mum/2010, Dr. B.V. Raju (supra), Guffic Chem (P.) Ltd. v. CIT 32 ITR 602 (SC) and John D'Souza Vs CIT (supra). 7. Per contra, the Ld. Departmental Representative strongly relied upon the findings of the lower authorities and pointed out that the Tribunal in the case of Dr. B.V. Raju (supra) has clearly held that prior to amendment brought with effect from 1.4.2003 when there are receipts by a person as Non compete fee under an agreement not to carry on particular business, then it was regarded as capital receipt not chargeable to tax. However, with effect from April 1st 2003, provisions of Sec. 28 has been amended by inserting sub sec. (va) in section 28 and with the amendment to the law Non compete fee even if it is a capital receipt is now chargeable to tax as income from business. The Ld. DR further relied upon the decision of Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as inserted by the Finance Act 2002 w.e.f. 1.4.2003 Sec. 28[(va) any sum, whether received or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head "Capital gains"; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.-For the purposes of this clause,- (i) "agreement" includes any arrangement or understanding or action in concert,- (A) whether or not such arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake it taxable in the hands of the recipient of such income. Hon'ble Supreme Court in the case of Guffic Chem. (P.) Ltd. (supra) held that payment received as Non Compete fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide Finance Act, 2002 w.e.f. April 2003 that receipt by way of Non compete fee was made taxable u/s. 28(va) of the Act. The Hon'ble Supreme Court was dealing with the situation wherein it was to be decided whether Non compete fees could be charged under the head profits and gains of business or profession prior to amendment brought w.e.f. 1.4.2003 to which the Hon'ble Supreme Court held that liability cannot be created retrospectively therefore the said section 28(va) is amendatory and not clarificatory, which observation fortifies our view that w.e.f. 1.4.2003 Non compete fees is taxable under the head "profits and gains of business or profession" as a revenue receipt. 13. Hon'ble Jurisdictional High Court of Bombay in the case of John D'Souza (supra) has also held that any payment for not carrying out any activity or for refraining from carrying out activity in relation to busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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